More than 200 billion USD was ‘erased’ from the crypto market in one day

According to Nikkei, the market electronic money The world lost more than 275 billion USD in just 24 hours, after the collapse of TerraUSD, the cryptocurrency believed to be pegged to USD, caused chaos. According to data from CoinMarketCap, as of the afternoon of May 12, the total market capitalization of global cryptocurrencies is 1.140 billion USD, down more than 19% at the same time on May 11. Dozens of cryptocurrencies have lost a quarter or more of their value.

The crisis of confidence among crypto investors began to spread since the end of last week, when the value of TerraUSD was not pegged to the USD. Reuters

The crisis of confidence among crypto investors began to spread since late last week, when the value of TerraUSD, aka UST, was deprecated against USD. UST is one of the most popular stablecoins, having the same value as fiat currency in world real and has become the backbone of a number of cryptocurrency transactions. The UST value pegged to USD is based on a complex algorithmic interaction with a “sister” token called Luna for price stability. Amidst the turmoil, Luna also sold out. This leads to the algorithm not working properly, breaking the link of UST with USD.

The price of UST fell to a low of 23 US cents on May 11 and recovered to around 60 US cents on May 12, far below the $1 lock it could hold. “I understand that the past 72 hours have been extremely difficult for all of you. But know that I am determined to work with all of you to get through this crisis, and we will build a path out of this,” Do Kwon, the developer behind UST, wrote on Twitter.

“The snowball effect across the market is huge,” said Andy Lian, president of Dutch-registered cryptocurrency exchange BigONE Exchange. UST deviated too much from the $1 mark, leading to panic in the market. Investors are fleeing riskier assets amid rising inflation concerns and sell-offs Bitcoin when the value of this currency falls below their expectations”.

Ethereum, the second-largest cryptocurrency after Bitcoin, is also down more than 20% in the 24 hours to May 12 afternoon. Other popular and well-established coins have lost even more value. According to CoinDesk, XRP and Polkadot are both down about 30%, Dogecoin down a third.

The collapse of UST is getting special attention from regulators. Many of them have issued stark warnings about the potential risk to financial stability posed by stablecoins. In testimony before the Senate Banking Committee on May 10, US Treasury Secretary Janet Yellen said that what is happening in the cryptocurrency market demonstrates the need for federal regulation.